So, just who do you think your're employing ?

Archived article dated Wednesday August 6th 2008

According to a report published this week by my colleagues in KPMG's Forensic team, there has been a significant spike in cases of major fraud - those worth over £100,000 - in the UK during the first half of 2008.

by Helen Dickinson

The latest 'Fraud Barometer' found that 128 cases worth over £630 million came to court in the first part of the year, a significant rise compared with £421 million across 91 cases in the previous six month period.

Perhaps more worryingly, these most recent cases largely predate the credit crunch in terms of when the frauds were committed. The fear is that we will not see the real and full fraud impact of the crunch for another six to twelve months or even more, as businesses start to take a closer look at their operations in this difficult economic climate. There are signs that we could end up seeing further substantial losses being suffered.

The survey revealed that lower-level employees committed more fraud than managers in the first half of the year; £94 million across 26 cases, compared to £63 million across 20 cases committed by managers.

Whilst this research considers fraud affecting the whole economy, it's fair to say that no industry sector is immune to this type of crime.

I think that these statistics highlight that thorough employee vetting procedures have never been more important, as every single retail business is vulnerable to all sorts of fraud.

When a retailer appoints a new chief executive, finance director or other Board member, you would expect that their appointment would be subject to a number of background checks - and quite rightly too as that person will greatly influence the future direction of the business. Would the same degree of checking be undertaken for a new employee much further down the pecking order? I guess not.

Of course, not everyone who is recruited in haste without a series of checks is going to be a fraudster or a major criminal. But can retailers be sure they're employing who they think they're employing without having some sort of process in place? Even setting aside the criminal aspect, hiring people who turn out to be much less than they claimed - in terms of skills or experience - means that there could be someone on the shop floor who could actually damage the brand just by working there.

And it's not just the scope to commit fraud that retailers expose themselves to if they're not sure who they are employing. What if members of staff have access to commercially sensitive data? What if they work on a retailer's loyalty card scheme, for example, and have access to millions of pieces of personal data?

According to the BRC's Retail Crime Survey published last year, £136 million worth of internal theft and fraud has been detected since the start of the decade, with £30 million in 2006 alone. However, perhaps in the retail sector it's not all bad news, because although that figure has risen steadily, the British Retail Consortium says this shows that retailers have become better at detecting and accounting for the losses they incur from fraud.

So, as well as knowing exactly who is working within their organisation, retailers need to ensure they have the right internal checks and controls in place - and hopefully the figures from the BRC show that this is happening.

The ingenuity and audacity of fraudsters often catches people off their guard, which is why companies and individuals need to be fully alert to what is, in these challenging economic conditions, an ever-present and growing threat.

An economic downturn such as we are seeing now can create the motivation for individuals to commit such crimes and it is up to retailers to ensure they do as much as possible to minimise the risk of it happening to them.

Tagged as: helen dickinson | fraud | kpmg | employees

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